It’s not often the Financial Conduct Authority (FCA) asks the market which of its rules could be made simpler, but last month, that’s exactly what it did.
Mortgage brokers were quick to welcome the news, pleased that the regulator was keen to remove duplication and unnecessary complexity from the rulebook.
But which of the many rules and guidance that fill the vast number of pages of financial regulation should be streamlined or removed?
Ahead of the closing date for comments of 31 October, Mortgage Solutions asked industry experts for their views on where improvements could be made.
In its call to arms, the FCA said it wanted to simplify its retail conduct rules and guidance following the introduction of the Consumer Duty regulation.
It added: “We particularly want to address potential areas of complexity, duplication, confusion, or over-prescription, which create regulatory costs with limited or no consumer benefit.”
Simplification opportunities
Graeme Jones, regulatory policy and technical consultant at Bankhall, said there was an opportunity to streamline mortgage rules relating to the provision of information and additional disclosures.
He also sees areas in the handbook that would benefit from greater clarity, to avoid confusion.
He added: “This includes the expectations on mortgage intermediaries when undertaking debt consolidation exercises and clearer guidelines on the standards expected when conducting and presenting back a cost analysis to the customer.”
Dr Konrad Rotthege, co-founder at conveyancing specialist Conveyo, agreed that there is the potential for simplification in areas such as product disclosure and suitability requirements.
“The FCA’s focus on reducing regulatory burden could lead to a more efficient and competitive mortgage broking market,” he added.
Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, said a lot of the Consumer Duty rules were already covered under the Treating Customers Fairly regime, which has been working well for years. She would like the FCA to scale back what now constitutes a vulnerable person, as the rules appear to be too wide.
Affordability changes
Unsurprisingly, affordability was on the list of changes brokers would like addressing, to give lenders room to apply flexibilities where appropriate.
David Hollingworth, associate director of communications at L&C Mortgages, said a lot of guidance around the right approach to affordability, interest-only lending and lending into retirement was introduced following the financial crisis, but with less focus on specific rules.
“Aside from the need to certify income and therefore ending self-cert mortgages, a good deal of interpretation of the guidance was required. As a result, perhaps there aren’t as many hard and fast rules as we might initially have expected.
“Much is already built around principles that should give lenders some ability to interpret and flex criteria, as long as it is justified and continues to deliver good outcomes for customers.”
He’d also like to see the use of the APRC2 that came about when KFIs were replaced by the ESIS, giving a second cost comparison based on the highest point of lender rates over the last 20 years.
“Although that does help to expose that rates do fluctuate and could be rather different, I think it’s easy to suggest that this rate could only succeed in causing more confusion than it solves,” added Hollingworth.
Huge task ahead
Simplifying or scrapping rules will be a huge task for the regulator, said Tracy Griffiths, managing director of Switch Financial Network.
She said: “Apart from how large the handbook is, some of the rules will feed through to other areas in the industry, such as MCOB rules that feed through into the investment sector.
“I’m not saying there isn’t any duplication caused by Consumer Duty. However, the whole point of Principle 12, the most recent principle introduced that applies to Consumer Duty, was that it enhanced existing rules. And by enhancing those rules, it’s not duplication, it’s an extra higher level of expectation on firms through their systems and controls.”
Samantha Partington is a freelance trade and consumer journalist writing about property and personal finance. Previously she worked worked for the Daily Mail and Property Week. She is the former deputy editor of Mortgage Solutions and editor of Specialist Lending Solutions.
Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @SamJPartington1.
